Sovran Self Storage, Inc. Q1 2010 Earnings Call Transcript

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Sovran Self Storage, Inc. (SSS)

Q1 2010 Earnings Call

May 6, 2010 9:00 am ET

Executives

Kenneth Myszka – President & COO

David Rogers - CFO

Analysts

Christy McElroy – UBS

Todd Thomas - KeyBanc Capital Markets

Jordan Sadler - KeyBanc Capital Markets

Michael Salinsky – RBC Capital Markets

Michael Bilerman - Citigroup

Mark Lutenski - BMO Capital Markets

Bruce Garrison – Unspecified Company

Ki Bin Kim – Macquarie

Presentation

Operator

Greetings and welcome to the Sovran Self Storage first quarter 2010 earnings release conference call. (Operator Instructions) It is now my pleasure to introduce your host, Kenneth Myszka, President and COO for Sovran Self Storage.

Kenneth Myszka

Good morning and welcome to our first quarter conference call. First, as a reminder, the following discussions will include forward-looking statements. Sovran's actual results may differ materially from projected results.

Additional information concerning the factors that may cause such differences is included in our company's SEC filings. Copies of these filings may be obtained by contacting the company or the SEC.

The market conditions continue to be challenging. Nonetheless our results of operations were well within our guidance for the quarter. Same store revenues and net operating income decreased by 1.26% and 2.68% respectively. Same store operating expenses would essentially have been flat but for a nearly 4% increase in our accrual for property taxes.

Including those taxes operating expenses increased by 1.1%. Small improvements in many markets were made but they unfortunately were overshadowed by a continuing poor results throughout Florida and much of Houston, Texas.

Poor economic conditions and a weak housing market continued to plague our stores in Florida. On a positive note we resumed increasing rates of some in-place customers on a select basis and fortunately observed very little push back.

Our web optimization efforts are also paying dividends and our total web inquiries in the first quarter this year were more than 50% greater than Q1 2009. Traditional telephone inquiries also increased by 2% essentially proving that there is still demand for our product, at the right price.

We made no acquisitions for our own accounts or the joint venture however we did sell two stores in Holland, Michigan for a sales price of around $2.4 million. And during the quarter we completed three expansions at a total cost of $2.8 million.

And with that I’d like to turn the call over to David Rogers, our Chief Financial Officer, and he’ll provide some details of our quarter’s activities.

David Rogers

Thank you Kenneth, with regard to operation total revenue decreased $558,000 or 1.2% from 2009’s first quarter while operating expenses increased by about $265,000 resulting in an overall NOI decrease of 2.7%.

These overall results reflect the impact of the store we opened in Richmond last fall and the decline in same store results we’ll get to in a minute, net of the operating results of the two stores we booked as sold during the period.

Average overall occupancy was 79% for the quarter ended March 31, and average rent per square foot was $10.36. The overall occupancy rate at the end of the quarter was 78.8% which is about 20 basis points lower then that of last March end.

Same store results now include 353 of our 354 company-owned stores. Only the developments [break in audio] store in Richmond and the 252 Heitman JV stores are excluded from the pool. Same store revenues decreased by 1.3% from those of the first quarter of 2009 and this was primarily the result of same store weighted average occupancy declining from that of 2009’s Q 1 by 40 basis points to 79.2% and the rent on occupied space dropping 10 basis points to $10.39 per square foot.

The quarter end occupancy rate for the same store pool was 79%, about 20 basis points lower than last year’s March 31 level. So we continue to buy occupancy in this hyper competitive environment but for the first time in many quarters our move-in incentives declined on a year over year basis.

Last year’s first quarter saw us granting $3.4 million worth of move-in specials, this year we gave up $3.2 million. And kind of interestingly we granted some sort of incentive to over 1,000 more first time customers this year but the average concession dropped from $114.00 per move-in customer to $104.00.

Operating expenses on a same store basis increased by a total of 1.1% this period, almost all of it as a result of the 3.8% increase in property taxes. Other operating expenses with the exception of $170,000 increase in maintenance and curb appeal costs came in about even with last year’s depressed levels.

So over the same store net operating income dropped 2.7% from that of 2009’s first quarter. G&A costs for the period came in at $5.1 million, a bit higher than we thought, the main reason for the increase over last year was the anticipated ramp up of internet advertising costs and a jump in state and federal income taxes as a result of stronger profits in our taxable REIT subsidiary.

With regard to capital matters, as Kenneth mentioned we didn’t acquire any properties during the quarter for our own portfolio or for that of the joint venture. We did however sell two stores located in Holland, Michigan, and thereby we exited that market. The stores were sold for about $2.4 million.

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